A Class of Solvable Stopping Games

Luis H.R. Alvarez E. ()
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Luis H.R. Alvarez E.: Department of Economics, Turku School of Economics

No 11, Discussion Papers from Aboa Centre for Economics

Abstract: We consider a class of Dynkin games in the case where the underlying process evolves according to a one-dimensional but otherwise general diffusion. We establish general conditions under which both the value and the saddle point equilibrium exist and under which the exercise boundaries characterizing the saddle point strategy can be explicitly characterized in terms of a pair of standard first order necessary conditions for optimality. We also analyze those cases where an extremal pair of boundaries exists and show that there are circumstances under which increased volatility may break up the existence of a saddle point.

Keywords: Dynkin games; linear diffusions; fundamental solutions; minimal excessive functions (search for similar items in EconPapers)
JEL-codes: C73 C72 C61 (search for similar items in EconPapers)
Date: 2006-10
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